S&P Global says higher petrol prices and freight charges are tightening import margins, while Dangote Refinery’s pricing limits arbitrage into Nigeria

Nigeria’s fuel import market is facing fresh commercial pressure as Dangote Fuel Pricing, coupled with rising international petrol prices and higher freight costs, continues to narrow profit margins for importers, according to a new market assessment by S&P Global Commodity Insights.

Also read: Dangote Refinery shields Nigeria from fuel price surge, Says S&P

The latest Daily Refined Products Commentary, released on Thursday, paints a picture of a market where global cost pressures are colliding with domestic pricing realities, leaving importers with fewer opportunities to profit from bringing petrol into Nigeria.

Market participants told S&P Global that while international gasoline prices have strengthened, the pricing strategy adopted by the Dangote Petroleum Refinery has effectively capped the prices importers can charge in Nigeria, making many cargoes commercially unattractive.

One trader quoted in the report said premiums for petrol meeting Ghana’s fuel specifications had risen above those for Nigerian-grade products because prices in Nigeria remained constrained by the refinery’s market position.

According to the trader, prices are now “capped by Dangote prices.”

The report noted that petrol prices at the offshore trading hub in Lomé, Togo, have climbed above the refinery’s sales prices, removing the arbitrage opportunity that previously encouraged traders to divert cargoes into Nigeria.

“Lome values have risen above Dangote sales prices, which has ‘shut the arbitrage’, but this is not necessarily the case in Ghana,” the report stated.

The development comes despite market expectations that the refinery would raise its coastal sales prices in response to stronger international fuel markets.

Instead, traders said Dangote left its coastal prices unchanged, although S&P Global noted that the company’s recently introduced dollar-denominated pricing model could influence future pricing decisions.

“Although traders expected a Dangote price hike, the coastal sales price remained unchanged day over day,” the report said, citing two market participants.

Import economics have also been complicated by a sharp increase in shipping costs.

According to S&P Global, freight rates for transporting refined petroleum products from Northwest Europe to West Africa have risen significantly as vessels reposition across trading routes.

Platts, a division of S&P Global Commodity Insights, assessed the Clean UKC-West Africa 37,000-metric-tonne freight rate at $37.12 per metric tonne, up from $29.70 per metric tonne recorded on June 30, representing an increase of almost 25 per cent over the period.

The report also highlighted tightening conditions in the diesel market.

Reduced availability of Russian Black Sea cargoes has increased the cost of high-sulphur gasoil supplied into West Africa, while keeping the price differential between sulphur grades relatively narrow.

Platts assessed the FOB West Africa gasoline price at $1,053 per metric tonne, while the STS Lomé assessment stood at $1,078 per metric tonne, representing a $58-per-metric-tonne premium to Eurobob balmo.

Meanwhile, FOB Northwest Europe-West Africa cargoes were assessed at $1,005 per metric tonne, with a CIF net forward value of $1,042.25 per metric tonne.

For diesel, the STS Lomé assessment reached $1,173.50 per metric tonne, while the FOB West Africa diesel price was assessed at $1,233.50 per metric tonne.

The report underscores the changing dynamics of Nigeria’s downstream petroleum market since the 650,000-barrel-per-day Dangote Petroleum Refinery began supplying refined products locally.

Before domestic refining capacity expanded, Nigeria depended almost entirely on imported petrol, making international prices and freight costs the primary determinants of domestic supply.

As the refinery has steadily increased output, its pricing strategy has become a major reference point for marketers and importers.

While this has helped moderate domestic wholesale prices during periods of international volatility, it has also reduced arbitrage opportunities that previously encouraged imports whenever global market conditions shifted.

Also read: Dangote sets petrol price at $0.779 per litre in new pricing template

S&P Global concluded that unless international petrol prices and freight costs retreat, or domestic pricing adjusts to reflect changing market conditions, Nigerian fuel importers are likely to continue operating under tighter commercial margins, with Dangote’s pricing remaining one of the defining influences on the country’s petrol import economics.